1st Agency - the true costs of employing staff

We thought it might be helpful to show you the cost of employing domestic staff in the United Kingdom, by briefly mentioning the often over-looked true costs of employment.

In the United Kingdom, by law, you are required to register as an employer and operate a PAYE Scheme.

Whether the position you are seeking to fill will be part-time or full time or short term or permanent, you, the employer is required to pay Income Tax and National Insurance Contributions (NIC) (which go towards an employee's entitlement to unemployment and state pensions benefit) as well as an employer's NIC. This amount is totalled and then added to your staff's net wage to equal their gross wage (or deducted from their gross wage) to equal their net wage.

However fair it may or may not be, it is important to remember that it is the employer, NOT the employee who is ultimately responsible for insuring that these taxes are paid. If you are required to register and you do not, not only are you committing an offence, but the Inland Revenue can also penalise you for late tax and NIC filings. In addition, failure to file Employer's Annual turns by 19th May following the end of the tax year (usually 4th April) can result in additional penalties being imposed.

Because as a rule, domestic staff do not meet the Inland Revenue criteria for self-employment, by law, employers are required to provide to their employees, payslips, showing the exact tax and NIC deductions made to arrive at their net wage. It is the employee's responsibility under the Self-Assessment tax regime, to keep payslips, P45s (part 1a), and P60s (end of year summary) provided by their employer as proof of earnings.

It is a common practice for both, domestic staff agencies and potential employers to quote salaries, and potential employers to agree to employ domestic staff on a net wage basis, but in reality, domestic staff are paid a gross wage, with the relevant tax and NI withheld and paid to Inland Revenue on the employee's behalf. Although employers tend to look at this as an additional cost, it is actually a part of the employee's total package and should be considered prior to agreeing a wage. [ In addition to the gross wage, employers are also required to pay an Employer's National Insurance contribution for each employee.]

As you probably ascertained by now, there is a considerable difference between the net wage actually paid to an employee and the true cost of employing the staff. Potential employers are advised to find the true cost before agreeing to pay a specific wage. There are many payroll agencies specialising in administering these services for individual employers and small business one such agency recommended by us is Nannytax.

1st Agency is not a certified accountancy firm nor are we a legal firm. Therefore the above information should be read as guidance only. If you are unsure of the legalities or tax responsibilities of employing domestic staff, it is advisable to seek guidance from your own accountant and/or solicitor.